Foreign Dining Prices in Korea Rise at Highest Rate in 22 Months... Signs of Inflation

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] Recent analyses suggest that inflation warning signs have intensified in South Korea's dining-out prices. As the economy enters a recovery phase, raw material prices have surged sharply due to bottlenecks.

On the 14th (local time), copper closed at $12,455 per ton on the London Metal Exchange. This surpassed the record high of $10,190 in February 2011, which was set during the global financial crisis when countries worldwide injected liquidity and demand recovered. Compared to last year's $5,000 range, the price has doubled.

On the same day, West Texas Intermediate (WTI) crude oil for June delivery traded at $65.37 per barrel on the New York Mercantile Exchange. This is more than double the approximately $27 per barrel price from a year ago. Although raw material prices generally pass through to product prices, it is difficult to fully reflect the rapid increase, which is expected to negatively impact manufacturing profitability.

Grain prices are also rising steeply. Corn, a primary ingredient in food and beverage products, reached $6.85 per bushel on the Chicago Board of Trade, up 114% from a year ago. Prices of soybeans, wheat, and oats have also increased.

With the rise in raw material prices compounded by semiconductor supply disruptions, the U.S. consumer price inflation rate in April was 4.2%. Core inflation, excluding food and energy, rose 0.9%, the highest increase in 39 years since April 1982. Even excluding the impact of rising raw material and grain prices, the normalization of economic activity and demand recovery are driving U.S. inflation upward.

In South Korea, inflationary signs are not strong but are gradually emerging. A former member of the Bank of Korea's Monetary Policy Committee said, "The rise in international raw material prices primarily affects U.S. consumer price inflation," adding, "Inflation signs are appearing in South Korea's dining-out prices." Even if supply prices for agricultural products and food ingredients rise, it is not easy to immediately pass the cost burden onto consumers, and the direction changes depending on whether demand is recovering or stagnating.

Meanwhile, the dining-out price inflation rate in April was 1.9%, the highest in 22 months since June 2019. Although it has not reached 2%, making it difficult to consider it a high level yet, the rate has been increasing steadily from 0.9% in November last year, 1.0% in December, 1.1% in January this year, 1.3% in February, 1.5% in March, to 1.9% in April, forming an upward curve.

On the other hand, the government views the price increase signs as 'temporary.' Lee Eok-won, First Vice Minister of Strategy and Finance, stated, "Considering the characteristics of the U.S. consumer price inflation rate in April, the strong recovery of our economy, and solid external credibility, there is no need to overreact."